Can You Use Gift Money for a Down Payment? Rules, Gift Letters, and Tips

By Jerry L Kindig III, NMLS #2397823

Buyers ask me this all the time: "My parents want to help with the down payment. Is that allowed?" In most cases, yes. Gift money is one of the most common ways people come up with cash to buy a home, especially first-time buyers.

The catch is that a lender can't just take your word for it. Gift money has to come from the right person, it has to be a real gift and not a loan, and you have to be able to show where it came from. Get those three things right and it's usually a smooth part of the process. Get them wrong and it can slow your closing down.

Can you use gift money for a down payment?

For most common loan types, you can. The Consumer Financial Protection Bureau lists help from family as one of the main ways people cover a down payment, as long as you can prove where the money came from and there's a signed statement that it's a gift, not a loan.

Here's how it works on the two loan types I see most:

• Conventional loans. Fannie Mae's Selling Guide lets gift funds cover all or part of the down payment, closing costs, and reserves on a primary home or a second home. On a one-unit home you'll live in, the whole amount can come from a gift. On some other setups, like a second home or a two- to four-unit property with a smaller down payment, you may need to put in some of your own money first.
• FHA loans. HUD's handbook also allows gifts toward the money you bring to closing, with its own list of who can give and how the gift has to be documented.

One big exception: on the conventional side, gifts aren't allowed for investment properties. If you're buying a rental, plan on using your own money.

Not sure which loan fits you? Our FHA vs. conventional comparison breaks it down.

Who can give you gift money?

This is where the rules get specific.

For conventional loans, Fannie Mae allows gifts from a relative (by blood, marriage, adoption, or legal guardianship), a domestic partner, a fiancé, a former relative, or someone with a long-standing family-like or mentorship relationship with you.

For FHA loans, HUD allows gifts from a family member, your employer or labor union, a close friend with a clearly documented interest in you, a charitable organization, or a government agency or public program that helps first-time or lower-income buyers.

Who can't give? Anyone with a stake in the sale. That means the builder, the developer, the real estate agent, or anyone tied to them. If someone on the other side of the deal wants to help with costs, that usually goes through a different route, like seller concessions, which have their own rules.

What goes in a gift letter

Every gift needs a gift letter. Your lender will usually hand you a form, so you don't have to write one from scratch. Under both Fannie Mae and HUD rules, it covers:

• The donor's name, address, and phone number
• How the donor is related to you
• The dollar amount of the gift
• A statement that you don't have to pay it back

That last line matters. If there's any deal to pay the money back, even an informal one, it's a loan, not a gift. A loan counts as debt, and it can change how much you qualify for. Be straight with your lender about it.

How to move the money the right way

This is where I see people get tripped up. The lender has to trace the money from the donor's account to yours, or straight to the closing agent. Common ways to show it:

• A copy of the donor's check plus your deposit slip
• Proof of an electronic transfer from the donor's account to yours
• A wire or cashier's check from the donor sent directly to the closing agent

A few tips from the trenches:

• Don't deposit cash. A stack of bills is hard to trace. HUD's FHA handbook says outright that cash on hand isn't an acceptable source for a donor's gift.
• Keep the paper trail clean. Transfer the gift as one clear deposit, and keep the statements that show it leaving the donor's account and landing in yours.
• Talk to your loan officer before the money moves. Timing can affect what paperwork you'll need, so a quick call first saves a lot of back-and-forth.

The gift letter and transfer proof sit on top of everything else lenders ask for. Here's the full list of documents needed for pre-approval.

Does the person giving the money owe gift tax?

Usually not, but it's worth a quick check. For 2026, the IRS annual gift tax exclusion is $19,000 per person receiving a gift. A gift above that may mean the giver has to file a gift tax return, but filing a return isn't the same as owing tax. The giver, not you, handles that part. I'm a loan officer, not a tax advisor, so have the person giving the money check with their tax pro.

How gift money fits into your bigger plan

A gift can cover the down payment, but don't forget closing costs and a little cushion after you move in. Our guide to how much money you need to buy a house walks through all of it. If a gift won't cover everything, down payment assistance might fill the gap. Check out our comparison of down payment assistance vs. saving 20%.

And to see how a bigger down payment changes your monthly payment, try our mortgage payment calculator.

FAQ

Can a friend give me money for a down payment?
Sometimes. FHA allows a close friend with a clearly documented interest in you. For conventional loans, Fannie Mae allows someone with a long-standing family-like or mentorship relationship. Your loan officer can tell you what documentation is needed.

Can gift money cover closing costs too?
Often, yes. Fannie Mae allows gifts toward the down payment, closing costs, and reserves, subject to its rules.

Can I use gift money to buy an investment property?
Not on a conventional loan. Fannie Mae doesn't allow gifts on investment properties.

What if the gift is really a loan from my parents?
Then it isn't a gift, and you'd need to tell your lender. Signing a gift letter that says no repayment is expected when there is one can cause serious problems.

Getting help from family? Let's plan it out.

If someone's offering to help with your down payment, reach out before the money moves. I'll walk you through which loan fits, what the gift letter needs, and how to transfer the funds so it doesn't slow anything down. You can browse our loan programs, check out our first-time buyer page, or get in touch through our contact page.

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Not all clients will qualify for these products. Eligibility and availability vary by program and borrower. This article is for general information only. It is not a commitment to lend or an offer of credit, and it is not tax advice. Gift fund rules vary by loan program and are subject to credit approval, underwriting, and property eligibility. Rates and programs change daily.

Neither the Loan Originator nor Loan Factory, Inc. is a government agency or is affiliated with, endorsed by, or acting on behalf of the U.S. Government, the Department of Veterans Affairs (VA), the Federal Housing Administration (FHA), or the U.S. Department of Agriculture (USDA).

Jerry L Kindig III, NMLS #2397823 | Loan Factory, NMLS #320841 | Equal Housing Opportunity